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Begin Part 2 of 2
TOMORROW
Well, the FOMC could not break the market out. It did not tank it either, instead holding at support in some cases with continued accumulation in NYSE stocks and smaller Nasdaq stocks. The indexes are still in their ranges and they are still showing good to fair price/volume action. There is overall accumulation right now, but as we have been saying, the Nasdaq is struggling. Right now the Dow and the S&P are at odds with the Nasdaq: they have nice patterns and are exhibiting nice accumulation. The Nasdaq is in a weaker pattern and its price/volume action is decent to neutral. The question is which one is going to win over investor mood.
Rates still at 1.75%, a pro-growth level. Economic data improving each week. Earnings turning from crud to better. Earnings warnings running much lower. Tax cuts doing some work on the economy. Stimulus package passed. President talking of more tax cuts to help small businesses. That is an awful lot of positive force on the economy and ultimately earnings. Tech won't deliver as well as some want (though some semiconductors could do better), but overall there looks to be some improvement in the near term. There is the continued concern that the recent inventory buildup will not be met with business buying, a fear the Fed voiced today and we talked about a month ago with respect to a double dip recession. That is why the President wants more small business tax cuts to give business incentive to meet that inventory buildup.
Earnings will not deliver across the board this quarter, but there will be improvement. The Dow and the S&P are ready to once again move higher and are at the most critical levels of their recoveries (all of them seem critical during the recovery period, don't they?). Again we expect a breakout this week once the market figures out the Fed did not do anything bad for the economy or stocks.
Support and Resistance
Nasdaq: Closed at 1880.87.
Resistance: 1875 is the bottom of the November consolidation, and though it has not totally cleared it, 1870 acted as support today. The 200 day MVA (1892.25) once again stopped the move today. The top of the November consolidation at 1934 to 1941. After that is 1980 (the December gap up point) and some minor resistance at 2000. Then the January top at 2098.88.
Support: 1870 to 1875 is trying to hold now. 1850 was able to hold as support last week. After that, it is pretty sparse down to 1800 to 1775.
S&P 500: Closed at 1170.29
Resistance: The December high (1173.62) and the January high (1176.97). That point also marks roughly the lows of summer 2001 consolidation that runs up to 1240. Before that point there is some resistance at 1183 from March 2000.
Support: 1150 and the 200 day MVA (1145.77). After that, 1125 is the hump in the double bottom, and the simple 50 day MVA (1128.48) and exponential 50 day MVA (1134.09) are converging. 1100 has acted as support as well.
Dow: Closed at 10,635.25
Resistance: The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high), is still holding it back. 10,800 represents some resistance. That is followed by resistance at 11,000 on its way to the May 2001 high at 11,345.72.
Support: 10,400 has held as support during this consolidation. That is followed by the January high at 10,300. Then the 200 day MVA (10,002.26) and 10,000 teaming up together.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-19-02
Trade Balance, January (8:30): -$26.9B versus -$25.3B%
FOMC Meeting (2:15): No cahnge in Fed Funds rate (1.75%). Balance of risks shifted to neutral.
3-20-02
Housing Starts, February (8:30): 1.63M versus 1.678M prior.
Building Permits, February (8:30): 1.65M versus 1.706M prior.
Treasury Budget, February (2:00): -61.0B versus -$48.2B prior.
3-21-02
Initial Claims, 3/16 (8:30): 377K versus 377K prior.
CPI, February (8:30): 0.2% versus 0.2% prior.
Core CPI, February (8:30): 0.2% versus 0.2% prior.
Leading Indicators, February (10:00): 0.3% versus 0.6% prior.
Philadelphia Fed, March (12:00): 17.8 versus 16.0 prior.
FOMC Minutes, 1/30 (2:00)
TEAM TRADES
OEX: We were looking at taking positions on the OEX if a good move started, planning on adding positions on a strong breakout over 600. The index started strong, running over our buy point at 92 and then pulling back to near 590. From there it started back up and we wanted to be in when it made the move back up. It started the move higher, making a gap up as it started its move. The index was right at 591.50 and the April $590 calls were 13.30 by 14.20. We had been seeing at $1 spread so the 90 cent spread looked pretty good. We put in a limit order at the ask, and with these options, the fill comes quickly. Well, it had a good rally after that. From 591.50 it ran to 594 on the high. Not bad; we were looking at a target of 600 on this aggressive move, maybe hanging on if the breakout came. It was looking good enough to stay with them. As we all know, the index falls, dropping to almost 589.50 on the low. It rebounded to close at 592.09. The options closed at 13.90 by 14.90, basically where we bought them. We are keeping them for the breakout we feel is still to come.
THE PLAYS:
Good movers: IT popped up on good, strong volume from the 10 day MVA after the orderly pullback; looks good! COTT bounced from its 18 day MVA on rising volume (still below average).
Covered Call: BMS dropped to 54.88 on Monday's low, but continues to hold support at the 18 day MVA. That was the point at which to buy back the April $50 calls. It is hanging at the 18 day for now, but looks ready to head up.
Continued Plays: Still like TUES from last night's report. PL is forming an ascending wedge as a handle to its cup. DRI closed back under the 50 day MVA so continue to look for a move down (buy point is 38.50 for the put play). NATI still looks good in the handle to its double bottom, and SLVN made a nice move up in its handle on stronger volume. SLVN very tight in its handle on decreasing volume; looks good! QLGC is tight at the 50 day MVA, showing a doji on lower volume. Getting ready for a bounce if the chips start rolling.
GPC (Genuine Parts--$38.08; +0.57; optionable): Auto Parts Wholesale
http://biz.yahoo.com/p/g/gpc.html
STATUS: Breakout! Hit the buy point at 37.71 on stronger, above average volume, 414,800 (avg. 339,000) in the 11-week cup with handle. Volume isn't quite there yet, but can catch up tomorrow. The stock remains a buy on the move up to 39.60. Need to see volume continue to ramp higher. Target: 45
BUY POINT: 38.35 on volume of 509,000 or higher. Stop Advisory (7%): 35.67.
POSITION: Stock and/or August $30 calls to buy (GPC HG).
http://www.investmenthouse.com/ct/gpc.html
New:
FCX (Freeport Mcmoran--$16.10; +0.61; optionable): Copper
http://biz.yahoo.com/p/f/fcx.html
STATUS: Breaking out of an ascending wedge on good volume (1.9 million; avg. 1.15 million), other metals sectors riding the tails of the recent moves in gold. Buy point in the pattern was 16.08, so the stock still has plenty of room to run on the breakout (up to 17). The pattern developed after FCX hit the 50 day MVA late February, and this breakout move was launched from the 18 day MVA on Monday. Excellent money flow and buying. Target: 19.30
BUY POINT: 16.25 on continued rising volume (over 2 million). Stop Advisory (7%): 15.11.
POSITION: Stock and/or August $12.50 calls to buy (FCX HV).
http://www.investmenthouse.com/ct/fcx.html
LEA (Lear--$48.54; +0.45; optionable): Auto Parts
http://biz.yahoo.com/p/l/lea.html
STATUS: LEA is in a 4-year base but is off the lows that are around 21. More recently it broke out of an ascending wedge-type pattern at the end of February for a nice run and is now testing the move on a pullback to its 18 day MVA (47.25). The breakout started off of the stock's 50 day MVA, and we are expecting LEA's first bounce from the 18 day from here. The stock used that support since October as it trended up before breakout run. Volume was higher at 615,300 (avg. 501,272) with the stock moving over the 10 day MVA after holding support at 47.55. Looks ready to move. Good buying! Target: 56
BUY POINT: Aggressive: 48.80 on volume in the range of 850,000 or higher. Stop Advisory (7%): 45.38
POSITION: Stock and/or June $45 calls to buy (LEA FI).
http://www.investmenthouse.com/ct/lea.html
WAG (Walgreen--$39.94; +0.08; optionable): Drug Stores
http://biz.yahoo.com/p/w/wag.html
STATUS: WAG crossed over its 200 day MVA (now at 35.50) in March on its way up the right side of its 16.5-month base (highs near 46); it has formed an ascending wedge in above the 18 day MVA. After bouncing from that support 4 times since January, we would expect the stock to correct back below that level, but the pattern looks bullish, with volume falling off and the pattern tightening nicely. Upper resistance is at the 40 range, with lower support the 18 day, for the last week the 10 day MVA. Showing a doji Tuesday on low volume (1.46 million; avg. 2.6 million), and we are looking for a breakout. Excellent money flow. Target is 46.
BUY POINT: 40.40 on volume of 3.5 million or higher. Stop Advisory (7%): 37.57
POSITION: Stock and/or July $37.50 calls to buy (WAG GU).
http://www.investmenthouse.com/ct/wag.html
PCAR (Paccar--$75.80; +2.61; optionable): Trucks
http://biz.yahoo.com/p/p/pcar.html
STATUS: Bouncing from the 18 day MVA (73.12) on strong volume, 1.1 million (avg. 540,363). The stock pulled off the high at 77, but looks ready to continue the move. The stock broke out of a short base it formed after a reverse head and shoulders breakout; that breakout wasn't strong, but the one from the shorter base was. This pullback to the 18 day MVA is a test of the more recent breakout. Good money flow. Target: 83
BUY POINT: Aggressive: 76.50 on continued strong volume. Stop Advisory (7%): 71.15
POSITION: Stock and/or August $70 calls to buy (PAQ HN).
http://www.investmenthouse.com/ct/pcar.html
Put:
MIL (Millipore--$44.82; -1.24; optionable):
http://biz.yahoo.com/p/m/mil.html
STATUS: MIL is breaking down in a head and shoulders pattern, closing Tuesday with a new low for March; the February low is 44.70. Volume was stronger (390,100; avg. 326,000) as the stock fell through some recent support at 46 (neckline) after turning down Monday from the 10 day MVA (46.80). Looking for a fall to 40 for the play.
BUY POINT: 44.72 on continued rising volume.
POSITION: July $50 puts to buy (MIL SJ).
http://www.investmenthouse.com/ct/mil.html
Previously covered:
VLY (Valley National--$35.19; +0.05; optionable): Regional Banks
http://biz.yahoo.com/p/v/vly.html
STATUS: Continues to hold the lateral pattern that is now a pennant holding above support at 35 and the 18 day MVA (34.87), on low volume (24,200; avg. 76,000). VLY bounced from the 50 day MVA for the run that prefaced the present pattern, and we are looking for a bounce now from the 18 day. Excellent money flow and good buying; target is 43.
BUY POINT: A continued hold for positions taken at 34.40. Breakout: 35.60 on volume of 103,000 or higher. Stop Advisory (7%): 33.11
POSITION: Stock and/or June $30 calls to buy (VLY FF).
http://www.investmenthouse.com/ct/vly.html
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Good Investing!
Jon L. Johnson and the Technical Traders Team
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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